Indonesia: BI leaves rates unchanged in December
At its 19–20 December monetary policy meeting, Bank Indonesia (BI) left the seven-day reverse repo rate at 6.00%, following a surprise rate hike in the prior month. In addition, the Bank left the deposit facility rate and lending facility rate at 5.25% and 6.75%, respectively.
The Bank’s decision to stay put came after 175 basis points of rate rises earlier in 2018, chiefly to support the rupiah and maintain the attractiveness of domestic financial markets. Following such significant tightening already this year, given that the currency has strengthened somewhat from the lows reached in October, and that inflation is subdued, the Bank felt that a further hike wasn’t warranted in December.
Bank Indonesia did not provide any explicit forward guidance in its communiqué, although future monetary developments are likely to be driven largely by external factors, given contained domestic cost pressures and solid GDP growth. With the U.S. Federal Reserve set to raise interest rates further in 2019, Bank Indonesia is likely to follow suit to protect the currency. In 2020, the Fed is seen loosening its stance somewhat, which should enable Bank Indonesia to cut rates to support the economy.
The next monetary policy meeting will be held on 16–17 January.